DYNAMICS OF INSTITUTIONAL CHANGE: THREE WATER POLICIES (AND TWO BRIGHT IDEAS) EXAMINED LEONG CHING (M.A., University of London) A THESIS SUBMITTED FOR THE DEGREE OF DOCTOR OF PHILOSOPHY LEE KUAN YEW SCHOOL OF PUBLIC POLICY NATIONAL UNIVERSITY OF SINGAPORE 2012 i       Declaration I hereby declare that this thesis is my original work and it has been written by me in its entirety I have duly acknowledged all the sources of information which have been used in the thesis This thesis has also not been submitted for any degree in any university previously Leong Ching Ching 15 August 2012 ii       Acknowledgements I would like to thank my PhD supervisor Professor Darryl Jarvis who taught me the theoretical foundations of public policy, as well as how to write a thesis: the importance of mastering disparate fields of research, careful analysis of data, and at the crucial last mile, how to panic well My thanks also to the members of my committee: Professor Eduardo Araral for infecting me with an interest in institutional theory and showing me the path from idle curiosity to intriguing research; Professor Wu Xun for his unrelentingly teleological approach policy analysis and lessons on how to get published I thank professors at the Tsinghua University, in particular, Professor Wang Yahua, for useful insights My final debt is, of course, to Professor Jesuthason Thampapillai, without whom none of this would have been possible I am grateful to the Lee Kuan Yew School of Public Policy for its generous funding Leong Ching iii       Table of Contents Page Number SUMMARY viii LIST OF TABLES x LIST OF FIGURES xi Chapter INTRODUCTION 1.1 The Dynamics of Institutional Change in the Water Sector 1.2 Path Dependence and Incremental Change 1.3 Norms, Institutional Endowments and the Agnostic Elephant 10 1.4 Interests 13 1.5 Synthesis of Institutional Change: Theory and Practice 16 1.6 Dynamics of Institutional Change: The Ideational Turn 20 1.7 Interpretation of Ideas 28 1.8 Getting the Stories Right 30 1.9 Framework for Analysis: A Subjective Theory of Institutional 32 Change 1.10 What Are Institutions Really? 33 1.11 The Methodological Premise 39 1.12 Q Methodology 42 1.13 Conclusion 44 Chapter YUCK AND RATIONALITY: RECYCLED DRINKING 47 WATER IN SINGAPORE 2.1 Introduction 47 iv       2.2 Recycled Water, “Yuck” and Discourse 48 2.3 Water Reuse in Singapore 53 2.4 The Place of Water in Singapore 54 2.5 Water from Malaysia 55 2.6 Elements of Discourse: The “Yuck” Factor 60 2.7 Discursive Institutional Analysis: Q Methodology 65 2.8 Institutional Change: “Yuck” to NEWater 72 2.9 Conclusion 80 Chapter INTEGRATED WATER RESOURCES 84 MANAGEMENT IN THE YELLOW RIVER 3.1 Introduction 84 3.2 Path Dependencies in the Yellow River 85 3.3 Path Dependencies: Integrated Water Resources Management 90 3.4 IWRM in China 94 3.5 Discourse in Inner Mongolia 111 3.6 The Economics of Water Use 112 3.7 The Impact of Technology 113 3.8 Low Water Supply 114 3.9 Healthy Industry 114 3.10 High Non-Revenue Water by Industry 117 3.11 Water Rights Transfer 117 3.12 Remains of a Local Fragmented Approach 119 3.13 Regulatory and Institutional Design 119 3.14 Outcomes 121 v       3.15 Chapter Conclusion PRIVATISATION AND COMPETING INTERESTS: 125 130 JAKARTA'S WATER SUPPLY 4.1 The Privatisation Debate: The Attractions of the Regulatory 131 State 4.2 Types of Interests 133 4.3 Jakarta: The Market Turn 137 4.4 The Tender Process and “Birth Defects” in Contracts 138 4.5 Elements of Discourse 145 4.6 Analysis of Key Factors: The Rhetoric and Reality of 155 Implementation 4.7 Conclusion 159 4.8 Costs of Privatisation 160 4.9 Joint and Mutual Interests 162 4.10 Aligning Interests and Institutions 163 Chapter THE POLITICAL AND MORAL LOGIC OF 166 INSTITUTIONAL CHANGE 5.1 Recapitulations 166 5.2 Synthesis of Findings 169 5.3 Analysis 173 5.4 Limitations 176 5.5 The Political and Moral Logic of Thick Narratives 178 5.6 Rules and Principles 182 vi       5.7 Justification and Legitimacy 189 5.8 Policy (Interpretive) Community 193 5.9 Conclusion 196 REFERENCES 198 APPENDICES 222 vii       Summary The central problem in water institutions today is the complexity and seeming intractability of large-scale water reforms In current literature on institutional change, three factors are identified as affecting institutional change - path dependencies, social norms and rational interests But while they illuminate some crucial aspects of change, any explanatory force appears one-sided as they explain either change or stasis but not both Neo-institutionalists have generally addressed this problem by providing a place for ideas, but despite the “ideational turn” some 15 years ago, a key question remains Not whether, but how, ideas make a difference How ideas cause institutional change? What is their role in the rise and fall of institutions? What is the ideational process by which institutions change? Current theorists postulate that ideas matter by reducing uncertainty and providing new guides for action In a process of social evolution, new ideas replace older ones in a competitive process of elimination, hence causing or allowing institutions to change This thesis confounds these views by demonstrating empirically that old or existing perceptions persist even after successful institutional change, and are in fact incorporated into a meta-narrative that has elements of both the old and a new narrative Second, the process is not an evolution but by one of hermeneutic choice between narratives which hold stronger or weaker incentives for certain courses of actions These incentives can be economic or normative, but they obey a certain political and moral logic which forms the key narrative The key research question is: “What are the processes by which ideas impact institutions?” This question is located within an empirical investigation into the dynamics of institutional change in three instances - recycled drinking water in viii       Singapore, integrated water management in the Yellow River in China, and water privatisation in Jakarta These variously represent the three key pathways - path dependencies, norms and rational interests - by which ideas affect change Of the cases, the first two were successfully implemented with relatively good outcomes, while the third remains mired in problems a decade after implementation In terms of method, I use Saleth and Dinar’s framework of subjective institutional change in the water sector, and generate data with the Q methodology About 1,000 pieces of text and 75 survey interviews were carried out in three countries The key finding is that ideas cause institutional change by acting as cognitive bridges between the existing set of institutions and a new set Institutional reforms succeed where these ideational bridges score highly along epistemic and narrative parameters of truth, richness and coherence, producing a thick narrative which allows many and sometimes contrasting perspectives This contrasts against a thin narrative which pits pairs of antithetical propositions against each other, the old set of institutions against a new Such a thin narrative resists institutional change These two theoretical modifications provide us with a better idea of how a general theory of institutional change is supposed to look, and in turn, hold practical policy impetus for large scale and difficult water reforms ix       LIST OF TABLES Review of research on path dependency Review of research on norms 10 Review of research on interests 13 Types of ideas and their effects on policy-making 20 Ideational Elements in Water Reforms 21 Water Agreements between Malaysia and Singapore 57 Recurrence of Antithesis in Primary Text 64 The opinion continuum for the Q sort 65 Comparison of Water Qualities 74 10 Yellow River zero flow since the 1970s 89 11 The opinion continuum for the Q sort 96 12 Recurrence of Antithesis in Primary Text 124 13 Ideational elements and interests 136 14 Recurrence of Antithesis in Primary Text 146 15 The opinion continuum for the Q sort 147 x       three major US ecosystem management initiatives for managing humandominated aquatic-terrestrial ecosystems Ecosystems 5(6): pp 509-528 Rosenau, J.N and Czempiel, E 1992 Governance without Government: Order and Change in World Politics Cambridge, USA: Cambridge University Press Rothstein, Bo 1999 Institutions Matter Oxford, UK: Oxford University Press Rothstein, Bo 2001 Creating Trust from above: Social Capital and Institutional Legitimacy Paper presented at the 2000 Annual Meeting of the American Political Science Association, Washington DC, August 31- Sept Rothstein, Bo 2005 Social Traps and the Problem of Trust Cambridge, UK: Cambridge University Press Russell, S and Lux, C 2009 Getting over yuck: moving from psychological to cultural and sociotechnical analyses of responses to water recycling Water Policy 11(1): pp 21–35 Salamon, L (ed) 2002 The Tools of Government: A Guide to the New Governance New York and Oxford: Oxford University Press Saleth, R M and Dinar, A 2004 The Institutional Economics of Water: A CrossCountry Analysis of Institutions and Performance Cheltenham, UK: Edward Elgar Scharpf, Fritz W 1998 Interdependence and Democratic Legitimation Max-Planck Institute for the Study of Societies (MPIfG) Working Paper 98/2 Scharpf, Fritz W 2009 Legitimacy in the multilevel European polity European Political Science Review 1: pp 173-204 Schauer, Frederick 2011 Precedent Forthcoming in the Routledge Companion to the Philosophy of Law, Andrei Marmor (ed) Available at SSRN: http://ssrn.com/abstract=1836384 213     Schimmelfennig, F 2001 The community trap: liberal norms, rhetorical action, and the Eastern enlargement of the European Union International Organization 55(1): pp 47–80 Schmidt, C.W 2008 The yuck factor: when disgust meets discovery Environmental Health Perspectives 16(12): pp A525–A527 Shah, T and van Koppen, B 2006 Is India ripe for integrated water resources management (IWRM)? 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Zhengzhou, China: Yellow River Conservancy Press 217     Appendix 1: Q-SAMPLE AND FACTOR SCORES All Statements NEWater helps to ensure Singapore’s water supply is not affected during dry months, which we may see more of as climate change causes rainfall to become unpredictable (1) -1 2 Water conservation projects, such as installing water-saving thimbles on taps to reduce water consumption, are not enough to meet Singapore’s increasing water needs (2) 2 -2 -1 0 Singapore is simply too small to collect enough water for its domestic and industrial needs (3) -1 -1 Water is a precious commodity and should be priced as such to ensure no one wastes it without feeling the pinch (4) -2 2 -2 0 NEWater benefits science in Singapore as it is a boost to the reputation of the scientific community and helps to attract more funding for water reclamation research (5) -1 0 -2 -1 0 NEWater is part of Singapore’s efforts to manage the entire water loop of water usage, collection and production (6) 1 1 -1 NEWater is a strain to Singapore’s energy network as it requires more energy to process than reservoir or imported water (7) -1 -1 -2 -1 0 Energy consumption in desalination and reclamation technologies has to be reduced (8) -1 -2 -2 -1 The science of NEWater needs to be made better known to the general public (9) -1 0 0 -1 NEWater helps in making Singapore a sustainable city by providing more potable water (10) 1 0 -2 NEWater is reclaimed water that has undergone purification and treatment processes (11) -1 -1 -1 NEWater is one of Singapore’s four “taps” and an important part of its water supply (12) 1 -2 -2 1 NEWater is more energy-efficient than desalination (13) -1 -2 1 Water reclamation is a long-term investment entailing huge costs in the short term but yielding benefit in the long term (14) 0 -2 -1 218     Singapore’s robust regulatory and legislative framework, transparent selection process, and the assurance of payments as these are made by a credit-worthy government are some reasons why the private sector is ready to be involved in water reclamation (15) 0 0 0 NEWater shows that environmental sustainability is not incompatible with economic development (16) -1 -1 -2 1 There is a need for better technology and engineering solutions as the demand for a secure water supply rises with a growing global population (17) 2 0 2 Developing NEWater is strategic asset management at a time when global water scarcity is undermining economic progress (18) 0 0 0 -2 Even with the increased supply of water from NEWater, it is important to treat water as a security issue (19) 1 Business opportunities in water management are abundant as developing countries such as China, India and the Philippines have huge potential for water technology investment (20) -1 -2 NEWater is safe to drink as it exceeds standards for drinking water around the world (21) 0 -1 1 -1 There is a rising acceptance worldwide of the use of reclaimed water as countries grapple with issues such as water scarcity and pollution (22) 0 1 0 -1 The flow of clean, plentiful water is as essential to our economy and society so it should not be taken for granted (23) 1 0 2 It is a challenge to secure public acceptance and encourage industry use of NEWater (24) -2 0 -2 -2 -1 Singapore is now recognised as a global hydro hub for its innovative water management (25) -1 -1 -1 -1 Water shortage was once a headache for Singapore but NEWater has increasingly allowed Singapore to be less reliant on Malaysia (26) -1 -1 -1 0 -1 New methods of producing water like NEWater may lead to higher water tariffs (27) -2 0 -1 -2 -2 -1 0 2 The drive to be self-reliant has given Singapore the room to be totally self-sufficient if there is no new water agreement with Malaysia in 2061 when the second water agreement 219     expires (28) The price of water has to take into account its scarcity as well as the cost of supplying and cleaning it (29) -1 -2 1 0 NEWater’s origin as sewage has slowly ceased to be the centre of jokes (30) -1 -1 0 -1 -2 Singapore applies the same pricing to industry as well as domestic users up to a certain level of consumption of water because both sectors have an equal responsibility to conserve water (31) -1 -2 -1 -1 0 NEWater has helped Singapore build up a symbol of creativity on top of its usual reputation of efficiency (32) -1 -1 -1 -1 0 NEWater is a better alternative than desalinated water because when salt and minerals are removed from water, they have to go somewhere and this has an impact on the environment (33) -1 0 -1 -1 -1 -1 NEWater is part of the Singapore story of realising an impossible dream of a strong state out of an island with no natural resources (34) -1 0 -1 0 Water security is a real problem that should not be glossed over as an unnecessary worry (35) 1 1 Installation of NEWater infrastructure benefits home-grown companies as some of the contracts go to Singapore firms and they are able to expand overseas (36) 0 0 0 -1 NEWater is a key part of self-reliance (37) 0 -1 0 Today we are taking Singapore’s own sources of water for granted (38) -2 -2 -2 1 -2 It is a responsibility for all Singaporeans to keep water not only clean but also not to waste it (39) 0 1 There is still an element of instinctive repulsiveness in drinking recycled sewage water (40) -2 -1 -1 -1 -2 Over the last five years, the water industry has become increasingly important to Singapore’s economy by doubling its share of GDP (41) -1 -2 -1 -1 Singapore-based companies have burnished the country’s reputation in the water industry by winning large projects overseas in Vietnam, China and Australia (42) 0 -2 0 -1 220     Government support is needed to help companies in research and development as well as exporting their products (43) -1 0 0 Disagreements over the water agreements between Singapore and Malaysia were a matter of life and death and could have led to war (44) -2 -2 -1 -1 -2 -1 Singaporeans should take pride that we used this major problem as an opportunity to create a real and important asset for Singapore (45) -1 -1 -1 0 Continual research into all aspects of water production can lead to lower water prices for Singaporeans (46) -1 -1 -2 -1 -1 -2 Singapore has the opportunity to provide the water sector leadership by offering the most conducive environment for innovation and devising best management and operational practices for water and sanitation service delivery (47) -1 -2 -1 0 -1 The private sector in Singapore has shown willingness and ability to partner with the public sector to improve access and delivery of water and sanitation services, and water problems confronting the world today have shown that government efforts alone are not enough so the private sector must step in as well (48) -2 -2 -1 -1 -1 0 Water-related issues can harm business – everything from drought to pollution to increased water tariffs (49) 0 -1 -1 -2 The most important thing may not be the water itself but an effective water policy (50) -2 0 -1 -2 221     Appendix 2: List of Interviewees No Name Song Chun 宋春 Liu Bin 刘斌 Zhang Yingchun 张迎春 Designation Vice Director, Office of the Municipal Bureau of Water Resources 市水利局办公室副主任 Department of Water Administration and Water Resources, Municipal Bureau of Water Resources 市水利局水政水资源科 Department of Water Projects, Ordos City Bureau of Water Resources 鄂尔多斯市水利局水利科 Duan Meisi 段美思 Jiang Yuan 江原 Sun Shousong 孙寿松 Li Feng 李锋 Su Zhong 苏忠 Xu Lianzhen 徐连镇 Liang Xi 梁喜 Department of Water Resources, Ordos City Bureau of Water Resources 鄂尔多斯市水利局水资源科 Deputy Director, Division of Water Administration, YRCC 黄委会水政局副局长 Captain of the Water Policy Motoring Team, Bureau of Water Resources, Daqi达旗水利局 水政 监察大队大队长 Vice Captain of the Water Administration Team, Daqi 达旗水政副队长 Vice Captain of the Operation Department 运行部 副部长 Deputy Director of the Water Field, Dalate Power Plant 达拉特发电厂 水场副主任 Liu Gaoqi 刘高奇, 61 Secretary, Ulan Zhang village 乌兰漳尔村支书 Wang Ruijun 王瑞军 Technician, Facilities Administration of Agricultural Areas, Dugui Tara Town 独贵塔拉镇 设施农业区技术员 Head and Senior Technician, Division of Water Resource Management and Relocation 山东黄河河务局水资源管理与调度处 水资源科 科长 高级工程师 Vice Director, YRCC Shandong Bureau 山东黄河河务局 副处长 教高 Li Gaolun 李高仑 Wang Zongbo 王宗波 222     Meng Xiangwen 孟祥文 Liu Guangsheng 刘广生 Zhu Xingming 朱兴明 Zhang Jianchun 张建春 He … … 贺… … Zhang Jihong 张继红 Head, YRCC Shandong Bureau 山东黄河河务局 科长 教高 Deputy Director, Jinan Municipal Branch, YRCC Shandong Bureau 山东济南黄河河务局 副局长 Vice Director, Jinan Municipal Branch, YRCC Shandong Bureau 山东济南黄河河务局 副处长 Head, Jinan Municipal Branch, YRCC Shandong Bureau 山东济南黄河河务局 科长 Head, Sluice Gate Management and Monitoring Station 闸管所所长 Water Monitoring staff member 站所测流人员 223     Appendix 3: Q-SAMPLE AND FACTOR SCORES Cooperation with private operators have caused PAM Jaya (the public water utility) to lose money (1) 0 -1 2 Private operators always ask for increases in water tariff (2) 1 1 Private operators cannot fulfil the water demands of Jakarta citizens (3) -1 2 The quality of water service provided by the private operators is worse than PAM Jaya’s back then (4) 1 -1 The private operators' performance is disappointing (5) 0 2 Private operators have more technical and financial capabilities compared to PAM Jaya to make the water service as good as the level of service in developed countries (6) -1 -2 -2 -2 Private operators only care about company profit but not adequate service (7) 0 -1 1 -1 Private operators are diligent when it comes to asking to pay the bill even though the water does not come out of the pipes (8) -1 -1 -1 Government does not want to be responsible for providing water to its citizens (9) -1 -1 2 -1 -2 Private operators prioritise care more for business and the rich when it comes to providing new clean water networks (10) -2 -1 -1 The subsidy for water is an excuse for the Government to privatise water resources (11) -2 -1 0 The Government should see to providing water as a main priority and not get the private sector to intervene (12) 0 -1 0 Water companies are profit-oriented and only financially-abled citizens are able to access clean water (13) -2 -1 The Government continuously asks for cooperation with many parties in order to achieve the clean water and sanitation targets (14) -1 -2 -2 -1 0 There need to be steps for PDAM (the water utility companies) to improve their services, either through new loans, private sectors, or own capital (15) -1 -2 -2 -2 -1 All Statements 224     Jakarta is a water-impoverished city (16) 0 -1 -1 The water distribution contract between two foreign companies is responsible for the bad quality of Jakarta's water (17) 0 0 The private sector is a useful partner because the Government has limited money for investments; the private sector is more efficient and can bring in new technology (18) -2 -2 -1 0 -1 With Public-Private Cooperation, sustainable financing can be achieved (19) -2 0 -1 -2 Public-Private Cooperation projects support the principle of pay as you use, i.e a person only pays what he uses (20) -2 -2 -2 -1 -2 -2 With the private sector in particular, clean water distribution can be more spread out, leakage minimised, and all bill readings and collection more organised (21) -2 -2 -2 -1 -2 -2 PPP in provision of clean water is very promising, but financial support from the Government is needed so the private sector can recover their costs and gain profit (22) 0 0 0 The son of then President Suharto pushed to include the private sector in providing water for Jakarta (23) -1 1 -2 -1 Water management by the private sector is based on unfair contract, that leads PAM Jaya to be in debt despite the profits of the private companies (24) 1 -1 0 An exploitation scheme that only benefits the interests of foreign companies (25) -1 -1 -1 The contract should be re-negotiated (26) 0 -2 -1 0 The Government needs to give incentives for the private sector to participate in PPP projects for developing access to water for the people.(27) -2 -1 The Jakarta Government and clean water operators should change the pricing structure so that they can reduce the tariff of this essential commodity (28) -2 -2 -1 -2 -2 -2 Both private companies have not kept their promises to improve the performance (29) 0 -1 1 Rather than complaining about there being not enough water, residents who not have water from the pipes should start stocking up as much as possible so that it is enough for one day (30) -2 -1 2 225     Prices are up, but the service is still poor, the water died without any notification, and the flow is very weak (31) 0 0 -2 -1 The water tariff cannot be raised any more because the water tariff in Jakarta is already high compared to other cities in Indonesia (32) -1 -1 -1 -1 If the water service does not improve, there will be a big demonstration by the residents (33) 0 0 The Jakarta Government could have been more stern with the operators given their bad performance (34) -2 -1 -2 -1 There is a water crisis in Jakarta (35) -2 -1 Residents are relieved because they no longer have to buy water from the water vendors, as houses are now installed with water pipes connecting to the master meter, the main hydrant supplied by PT PAM Lyonnaise Jaya (Palyja) (36) -1 -1 -1 -2 -1 It is better to drill my own well than going to the water utilities (37) -1 -2 -2 The Government should take back the management of water from the private operators (38) -1 The blame does not lie with the operators alone but with the corruption within the management (39) -2 1 0 The conflict between PAM Jaya and the two private operators is becoming more confusing to customers (40) -1 -2 0 0 Privatisation of water in Jakarta for the past 13 years has ignored the public's right to water in Jakarta (41) -1 1 The public is bearing the burden of PAM Jaya's debt to the private companies (42) -2 Water privatisation policy is not a popular policy currently, mainly because of the rise of the price required by the private operators (43) 0 -1 0 The process of privatisation should be more transparent (44) -1 0 -1 There is no one to complain to about poor water service because the operators and PAM Jaya are blaming each other (45) 0 0 The Government and the operators should cooperate to improve the situation (46) -2 -1 -1 226     The (PPP) agreements resulted in 150,000 Jakarta residents paying monthly bills without getting any clean water (47) 2 Because of poor regulations and patronage between the investors and the Government, the consumers must bear the cost of poor the performance (48) 2 -1 -2 PPP in Jakarta is a failure (49) 1 1 -1 The contract gives excessive protection to the two private companies while consumers’ interests are ignored (50) -2 -1 1 -1   227   ... Incremental Change 1.3 Norms, Institutional Endowments and the Agnostic Elephant 10 1.4 Interests 13 1.5 Synthesis of Institutional Change: Theory and Practice 16 1.6 Dynamics of Institutional Change: ... general theory of institutional change which Saleth and Dinar terms “subjective theory of institutional change? ?? The significance of this project as a whole lies in the essential nature of water to... of the dynamics of change Having an idea of the different variables, and with a working definition of ideas, we can then assess the current efforts at working out the ideational dynamics of institutional